Tuesday, June 8, 2010

Only in Theory

A recent editorial in the WSJ lays out the overly simplistic rhetoric that some economists use to criticize those with a more complex world-view.

The piece claims to highlight that "liberals" and "progressives" are woefully ignorant of basic economic principles. The article highlights the eight measures used in the survey:

The other questions were: 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree). 8) Restrictions on housing development make housing less affordable (unenlightened answer: disagree)

What the author clearly fails to understand is how overly simplistic these examples are. His use of the term "unenlightened" further shows the author's inability to comprehend that someone may not simply agree with these supposed truisms from Economics 101. However, the true story behind many of these statements is more come complex when you look at them empirically (as opposed to pretending that theoretical understanding plays out perfectly in the real world). Those familiar with the actual empirical literature on minimum wages know that the simple assertion of #7 is simply unfounded. Unemployment is a complex issue and to pretend that it is so largely affected by one factor just highlights how out of touch many in the field of economics are with reality.

Also, anyone familiar with survey methodology can identify poor question design and vague wording in many of the suppositions posed to the interviewees. The question don't ask whether these assertions are "correct according to economic theory." Were that the case, it is likely that many would answer differently (I know I would); and then you could only say that progressives and liberals didn't understand economic theory (something very different from economic reality). The survey questions also make widely unfounded suppositions -- for example, that there is something called "free trade" that exists outside of the minds of economists.

Finally, the questions fail to highlight that the benefits of many of these measures outweigh the theoretical negatives highlighted in the statements. Were it always true that mandatory licensing of professional services increases the prices of those services, then such an increase is a minor problem in comparison to having various unlicensed pseudo-professionals posing as actual professionals in a given field. To claim that simply disagreeing with such a simplistic statement in any way impugns the intervieweree is absurd to say the least.